Chapter 36 - Economic Indicators

• Effect of economic growth on economy

  - Decrease in national debt

  - More revenue from taxation
• 6 Economic Indicators

  1. Inflation

  2. Employment Levels

  3. Interest Rates

  4. National Debt

  5. National Income

  6. Economic Growth
• Effect of economic growth on businesses

  - Increase in new businesses

  - Decrease in business failures
• Effect of economic growth on households

  - Increased employment

  - Increased standard of living
• Economic Depression


  When recession is severe and continues for a long time
• Recession


  Slowdown in level of economic activity
• Economic boom


  rapid economic growth
• Formula for economic growth

  Year 2 - Year 1 / Year 1
• Economic Growth


  Increase in quantity of goods and services being produced in an economy from one year to the next
• GDP and GNP

  Gross Domestic Product and Gross National Product measure total value of the goods and services produced in a country in one year.
• National income

  Total value of all new goods and services produced in a country within a year
• Impact of national debt in economy

  - Public services might be cut back as they're unaffordable

  - Money spent on debt servicing is not available for other important needs, eg. public services.
• Impact of national debt on businesses

  - Taxes rising, so people are buying fewer goods and services

  - Reduced consumer demand leads to job losses
• Impact of national debt on households

  - Tax may increase to help fund repayments

  - Government spending will reduce, having a negative impact on public services.
• NTMA

  National Treasury Management Agency. Manages national debt
• Debt servicing

  Payment of interest on the national debt
• National Debt


  Amount of money that a country's government has borrowed
• Effect of high interest on economy

  - Decrease in revenue from VAT

  - Cost of servicing national debt increases

  - More unemployment, so more social protection payments
• Effect of high interest on businesses

  - Repayments on loans will rise

  - Higher borrowing costs
• Effect of high interest on households

  - Less borrowing, more expensive

  - People with existing loans will have less disposable income

  - Less borrowing
• Effect of low interest on economy

  - More revenue from VAT

  - Increased investment reduces unemployment and social protection payments

  - Cost of servicing the national debt is reduced

  - Less householders will save, this extra spending will lead to increased business profits.
• Effect of low interest on businesses

  - Expansion will be easier as loans are cheaper

  - Repayments on any existing loans will fall, leading to lower business costs
• Effect of low interest rates on households

  - Cheaper finance leads to more borrowing and spending

  - People with loans have more disposable income as repayment costs are reduced

  - Extra borrowing increases level of household debt

  - Less likely to save money
• Interest


  The financial cost of borrowing money, expressed as a percentage of the amount borrowed

  OR

  Reward for money saved
• Effect of low unemployment on economy

  - Increased economic activity

  - Workers from other countries may come to Ireland to take up available employment
• Effect of low unemployment on businesses

  - Employers must pay higher wages in order to attract workers

  - Increase in sales and profits as consumers have more income

  - Easier to attract investors at a time of increasing demand
• Effect of low unemployment on households

  - Increased consumer demand for goods and services.

  - Higher standard of living

  - Workers who left Ireland to find employment may return

  - People who choose not to work (eg. stay-at-home parents) may decide to get a job
• Effect of high unemployment on economy

  - Reduced economic activity due to a reduction in disposable income.

  - Black economy may grow and social problems may increase.
• Effect of high unemployment on businesses

  - Harder to attract extra finance as investors will be less willing to invest at a time of falling demand.

  - Reduction in sales and profits.

  - Emigration of skilled workers make Ireland less attractive for Foreign Direct Investment.
• Effect of high unemployment on households

  - Decrease in consumer demand for goods and services as people lose jobs and income levels fall.

  - Many will have a lower standard of living. Those facing long-term unemployment may suffer from poverty.

  - Some workers may have to emigrate to find employment.
• Full employment


  Situation where almost all members of the labour force are employed. In Ireland, an unemployment rate of 4% is considered full employment.
• Formula for unemployment rate

  Number of unemployed people / Total number in labour force x100

  
• Employed vs Unemployed


  Members of the labour force who are able to find work are said to be employed. Those who cannot are unemployed.
• Labour force


  All people of working age (16-65) who are willing and able to work
• Impact of high inflation on economy

  - Goods and services will be more expensive and more difficult to sell abroad, resulting in job losses.

  - Negative impact of balance of trade

  - Government spending may increase due to rising costs and increased social protection payments .
• Impact of high inflation on businesses

  - Workers may demand wage increases so they can afford the same amount of goods and services as they did before inflation.

  - Rising business costs will discourage expansion and investment.
• Impact of high inflation on households

  - Lower standard of living (can't afford goods and services)

  - May stop people saving money if the rate of interest they earn on savings is less than the rate of inflation.
• Balance of Trade


  The difference between the value of a country's total imports and their total exports.
• Exporting


  Selling goods and services to other countries.
• Importing


  Buying goods and services from other countries.